Noodlemakers urged to stop giving gifts and discounts

Tony Hotland, Jakarta

The Indonesian Food Industry Association (Aspipin) has urged all producers of instant noodles in the country to stop giving free gifts and discounts starting July 1 "to restore healthy competition" in the industry.

Aspipin chairman Bachtiar Yusuf explained on Tuesday that the frequent provision of discounts and free gifts had forced several producers to stop business because they were unable to compete with other producers who were able to sell their noodles at lower prices and give prizes at the same time.

"This isn't conducive for new investment and the creation of jobs. Furthermore, the producers have forgotten to produce better quality noodles because they're more occupied with how to sell their products as cheaply as possible," said Bachtiar.

He said competition in the sector was not healthy anymore because many producers had been selling their products at a much lower profit margin.

"For a healthy industry, the profit margin should be at least 30 percent. Now, many producers are operating with profit margins way under 20 percent," he said.

He cited an example of the significant increases in many ingredients over the years, which apparently had not resulted in an increase in the prices of noodles.

"This means that those producers have been subsidizing the prices to keep them low for the public, but most importantly just to survive in the sector," he said.

Bachtiar claimed that all members of Aspipin that produce noodles including the giant PT Indofood Sukses Makmur had agreed to the proposal.

"Although Indofood is not a member yet, it has agreed to our proposal. Indofood is an important key player since it dominates the market with a more than 80 percent market share," he said.

He suggested that companies, which have allocated a certain amount from their budget to offer free gifts and discounts, use the funds to improve the quality of the noodles and to initiate more innovations.

"It's expected that in the future noodles can also be a substitute for a meal, not only a snack. Noodles should be able to meet the required calories," he said.

Furthermore, Bachtiar said Aspipin had proposed to the producers to apply a minimum price for noodles, which would likely be higher than the current one, to attract new investment in the sector.

A pack of instant noodles now costs between Rp 600 (0.7 US cent) to Rp 1,000. The country's total output of instant noodles is about 12 billion packets per year, produced by some 18 companies.